nep-pbe New Economics Papers
on Public Economics
Issue of 2017‒08‒06
fourteen papers chosen by
Thomas Andrén

  1. The Taxation of Recreational Marijuana: Evidence from Washington State By Benjamin Hansen; Keaton Miller; Caroline Weber
  2. Human Capital, Public Debt, and Economic Growth: A Political Economy Analysis By Tetsuo Ono; Yuki Uchida
  3. Taxation trends in the European Union: 2017 edition By European Commission
  4. Assessing the Fiscal Sustainability of the Czech Republic By Robert Ambrisko; Vilma Dingova; Michal Dvorak; Dana Hajkova; Eva Hromadkova; Kamila Kulhava; Radka Stikova
  5. More Giving or More Givers? The Effects of Tax Incentives on Charitable Donations in the UK By Almunia, Miguel; Lockwood, Ben; Scharf, Kimberley
  6. Should Pollution Taxes be Targeted at Income Redistribution? By Bas B. Jacobs; Rick F. van der Ploeg
  7. The political economy of fiscal transparency and independent fiscal councils By Beetsma, Roel; Debrun, Xavier; Sloof, Randolph
  8. Tax Audits as Scarecrows: Evidence from a Large-Scale Field Experiment By Marcelo L. Bérgolo; Rodrigo Ceni; Guillermo Cruces; Matias Giaccobasso; Ricardo Perez-Truglia
  9. The Relative Effects of Economic and Non-Economic Factors on Taxpayers’ Preferences Between Front-Loaded and Back-Loaded Retirement Savings Plans By Andrew D. Cuccia; Marcus M. Doxey; Shane R. Stinson
  10. The Spill-over Effects of Top Income Inequality By Morten Olsen; Joshua Gottlieb; David Hemous; Jeffrey Clemens
  11. Equalization transfers and convergence between federal and unitary systems: a contribution to their historical analysis By Giorgio Brosio
  12. Markups and fiscal policy: analytical framework and an empirical investigation By Georgios Christou; Panagiotis Chronis
  13. Estimating Public Spending on Health by Levels of Care for National Health Accounts: An Illustration of Use of Data on Withdrawals by Drawing and Disbursing Officers (DDOs) in India. By Choudhury, Mita; Dubey, Jay Dev
  14. Corporate Income Tax, Legal Form of Organization, and Employment By Chen, Daphne; Qi, Shi; Schlagenhauf, Don E.

  1. By: Benjamin Hansen; Keaton Miller; Caroline Weber
    Abstract: The median United States voter supports the legalization of marijuana, at least in part due to a desire to increase state tax revenues. However, states with legal markets have implemented wildly different regulatory schemes with tax rates ranging from 3.75 to 37 percent, indicating that policy makers have a range of beliefs about industry responses to taxes and regulation. We examine a policy reform in Washington: a switch from a 25 percent gross receipts tax collected at every step in the supply chain to a sole 37 percent excise tax at retail. Using novel, comprehensive administrative data, we assess responses to the reform throughout the supply and consumption chain. We find the previous tax regime provided strong incentives for vertical integration. Tax invariance did not hold, with some types of firms benefiting much more than predicted. Consumers bear 44 percent of the additional retail tax burden. Finally, we find evidence that consumer demand for marijuana is price-inelastic in the short-run, but becomes price-elastic within a few weeks of a price increase.
    JEL: H2 H20 H21 H22 H23 H25 H26 H32 H71 I1 I18 K4
    Date: 2017–07
  2. By: Tetsuo Ono (Graduate School of Economics, Osaka University); Yuki Uchida (Faculty of Economics, Seikei University)
    Abstract: This study considers the politics of public education policy in an overlapping- generations model with physical and human capital accumulation. In particular, this study examines how debt and tax financing differ in terms of growth and welfare across generations, as well as which fiscal stance voters support. The analysis shows that the growth rate in debt financing is lower than that in tax financing, and that debt financing creates a tradeoff between the present and future generations. The analysis also shows that debt financing attains slower economic growth than that realized by the choice of a social planner who cares about the welfare of all generations.
    Keywords: Economic growth, Human capital, Public debt, Political equilib- rium
    JEL: D70 E24 H63
    Date: 2016–01
  3. By: European Commission
    Abstract: This report contains a detailed statistical and economic analysis of the tax systems of the Member States of the European Union, plus Iceland and Norway, which are Members of the European Economic Area. The data are presented within a unified statistical framework (the ESA2010 harmonised system of national and regional accounts), which makes it possible to assess the heterogeneous national tax systems on a fully comparable basis.
    Keywords: European Union, taxation
    JEL: H23 H24 H25 H27 H71
    Date: 2017–07
  4. By: Robert Ambrisko; Vilma Dingova; Michal Dvorak; Dana Hajkova; Eva Hromadkova; Kamila Kulhava; Radka Stikova
    Abstract: We present a model of public finance for the Czech Republic that addresses the main sources of risks to long-term fiscal sustainability: ageing-related expenditures and revenues, and the corresponding evolution of government debt. The baseline model is based on recent demographic projections issued by the Czech Statistical Office that forecast a shrinking share of the working-age population. Along with regulations and microeconomic incentives embedded in the tax and expenditure systems, demographic developments will affect economic growth and government expenditure and revenues in the long run. Population ageing is found to have a significant impact on future government expenditure via spending on old-age pensions and health care, where the cost profiles are modelled to reflect technological progress in the treatment of ageing-related illnesses. The analysis shows that under the current policy settings, a compound demographic effect will cause the primary government balance to turn negative at the beginning of the 2030s. The growing primary deficits, along with interest payments, which react to debt dynamics, will lead to a rapid escalation of government debt. While the outcome of the model is dependent on the specific settings of macroeconomic trends and policy variables, our wide range of sensitivity analyses show that without a policy response, even the most optimistic population scenario delivers an unsustainable path for public finances.
    Keywords: Ageing, debt, demographics, fiscal sustainability, health care expenditure, old-age pension expenditure
    JEL: B12 B52
    Date: 2017–07
  5. By: Almunia, Miguel; Lockwood, Ben; Scharf, Kimberley
    Abstract: This paper estimates the tax-price elasticity of giving using UK administrative tax return data, exploiting variation from a large tax reform. We estimate both the in- tensive and extensive-margin elasticity, using a novel instrumental variables strategy. Then, we derive new conditions to evaluate the welfare consequences of changes in the generosity of the subsidy to donations. We find a small intensive-margin elasticity of -0.2 and a substantial extensive-margin elasticity of -0.8, yielding a total elasticity of about -1. These estimates mask considerable heterogeneity: high-income individ- uals respond more on the intensive margin, while the extensive-margin response is stronger among low-income taxpayers.
    Keywords: Donations; Tax policy; Tax Subsidies for Giving
    JEL: D64 H24 H31
    Date: 2017–07
  6. By: Bas B. Jacobs (Erasmus University Rotterdam, Tinbergen Institute and CESifo; Tinbergen Institute, The Netherlands); Rick F. van der Ploeg (University of Oxford, Tinbergen Institute, CEPR and CESifo)
    Abstract: This paper analyses optimal corrective taxation and optimal income redistribution. Under general utility functions, the Pigouvian pollution tax is higher if pollution damages disproportionally hurt the poor due to equity weighting of pollution damages. Moreover, optimal pollution taxes should be set below the Pigouvian tax if the poor spend a disproportionate fraction of their income on polluting goods. However, if preferences for commodities are of the Gorman (1961) polar form, optimal pollution taxes should follow the first-best rule for the Pigouvian corrective tax even if the government wants to redistribute income and the poor spend a disproportional part of their income on polluting goods. The often-used quasi-linear, CES and Stone-Geary utility functions all belong to the Gorman polar class. If preferences are Gorman polar, and if pollution taxes are not optimized, Pareto-improving green tax reforms exist that move the pollution tax closer to the Pigouvian tax. Simulations demonstrate that optimal corrective taxes should be Pigouvian if the demand for polluting goods is derived from a LES demand system, but deviate from the Pigouvian taxes if demand for polluting goods demand is derived from a PIGLOG demand system.
    Keywords: redistributive taxation; corrective pollution taxation; Gorman polar form; Stone-Geary preferences; PIGLOG preferences; green tax reform
    JEL: H21 H23 Q54
    Date: 2017–08–01
  7. By: Beetsma, Roel; Debrun, Xavier; Sloof, Randolph
    Abstract: The global surge in independent fiscal councils (IFCs) raises three related questions: How can IFCs improve the conduct of fiscal policy? Are they simultaneously desirable for voters and elected policymakers? And are they resilient to changes in political conditions? We build a model in which voters cannot observe the true competence of elected policymakers. IFC's role is to mitigate this imperfection. Equilibrium public debt is excessive because policymakers are "partisan" and "opportunistic". If voters only care about policymakers' competence, both the incumbent and the voters would be better off with an IFC as the debt bias would fall. However, when other considerations eclipse competence and give the incumbent a strong electoral advantage or disadvantage, setting up an IFC may be counterproductive as the debt bias would increase. If the incumbent holds a moderate electoral advantage or disadvantage, voters would prefer an IFC, but an incumbent with a large advantage may prefer not to have an IFC. The main policy implications are that (i) establishing an IFC can only lower the debt bias if voters care sufficiently about policymakers' competence; (ii) not all political environments are conducive to the emergence of IFCs; and (iii) IFCs are vulnerable to shifts in political conditions.
    Keywords: competence; congruence; fiscal transparency; Independent fiscal councils; opportunistic bias; partisan bias; public debt
    JEL: E62 H6
    Date: 2017–07
  8. By: Marcelo L. Bérgolo; Rodrigo Ceni; Guillermo Cruces; Matias Giaccobasso; Ricardo Perez-Truglia
    Abstract: According to the canonical model of Allingham and Sandmo (1972), firms evade taxes by making a trade-off between a lower tax burden and higher expected penalties. However, there is still no consensus about whether real-world firms operate in this rational way. We conducted a large-scale field experiment, sending letters to over 20,000 firms that collectively pay over 200 million dollars in taxes per year. In our letters, we provided firms with exogenous but nondeceptive signals about key inputs for their evasion decisions, such as audit probabilities and penalty rates. We measure the effect of these signals on their subsequent perceptions about the auditing process, based on survey data, as well as on the actual taxes paid, according to administrative data. We find that firms do increase their tax compliance in response to information about audits. However, the patterns in these responses are inconsistent with utility maximization. The evidence suggests that, much like scarecrows frighten off birds, audits can be a significant deterrent for tax evaders even though they would be perceived as harmless by a rational optimizer.
    JEL: C93 H26 K42
    Date: 2017–07
  9. By: Andrew D. Cuccia; Marcus M. Doxey; Shane R. Stinson
    Abstract: To understand the potential impact of tax incentives on individual retirement saving, we must understand how individuals make decisions about saving. We examine individual taxpayers’ choices between front-loaded (e.g., traditional) and back-loaded (e.g., Roth) defined contribution retirement savings plans, as well as their saving levels and investment style choices within a plan. To do so, we conduct a series of experiments that allow us to consider individual-specific expectations regarding the economic factors that normatively drive retirement saving decisions, as well as non-economic attitudes and preferences that may also impact these decisions. Overall, we find that participants generally prefer back-loaded retirement plans to front-loaded plans. We find mixed evidence regarding whether individuals appropriately weight expected tax rate changes in their plan choices, despite the fact that these tax rate changes are the primary factor driving the relative after-tax returns of front- and back-loaded plans. Conversely, we find evidence that plan attributes related to individuals’ non-economic attitudes and preferences consistently influence plan choice. Saving levels, while idiosyncratic and difficult to predict, are negatively associated with preference for back-loaded plans and may be influenced by tax-related contextual variables as well. Investment risk is also negatively associated with preferences for back-loaded plans.
    Date: 2017–07
  10. By: Morten Olsen (IESE Business School); Joshua Gottlieb (University of British Columbia); David Hemous (University of Zurich); Jeffrey Clemens (University of California at San Diego)
    Abstract: Since the 1980s top income inequality within occupations as diverse as bankers, managers, doctors, lawyers and scientists has increased considerably. Such a broad pattern has led the literature to search for a common explanation. In this paper, however, we argue that increases in income inequality originating within a few occupations can spill over"into others creating broader changes in income inequality. In particular, we study an assignment model where generalists with heterogeneous income buy the services of doctors with heterogeneous ability. In equilibrium the highest earning generalists match with the highest quality doctors and increases in income inequality among the generalists feed directly into the income inequality of doctors. We use data from the Decennial Census as well as the American Community Survey from 1980 to 2014 to test our theory. Specifically, we identify occupations for which our consumption-driven theory predicts spill-overs and occupations for which it does not and show that patterns align with the predictions of our model. In particular, using a Bartik-style instrument, we show that an increase in general income inequality causes higher income inequality for doctors, dentists and real estate agents; and in fact accounts for most of the increase of inequality in these occupations.
    Date: 2017
  11. By: Giorgio Brosio (Università di Torino)
    Abstract: Equalization transfers, or grants, are a crucial component of modern federal and unitary countries. They also shape the evolution of different political systems promoting convergence in their effective working. The literature does not provide studies with a long-term and comparative perspective despite the relevance of this approach to the study of intergovernmental relations. The paper provides a contribution aimed at filling this void. It considers a small set of countries, including two unitary systems, Italy and the UK with a focus on English local government and three federal countries, Australia, Canada, and the United States. Federal systems are paying now more attention than initially to uniformity of policies and equality of access to the benefits of public policies, while unitary systems show now much more attention than in the past to reaching equality of access and benefits from policies through local autonomy and use of transparent intergovernmental grants, rather than with hierarchical command. Another way of illustrating this process is stressing the growing recognition of common citizenship in both federal and unitary states.
    Keywords: Evolution of intergovernmental relations; equalization transfers, political institutions
    JEL: H7 H77
    Date: 2017–07
  12. By: Georgios Christou (Athens University of Economics and Business (former)); Panagiotis Chronis (Bank of Greece)
    Abstract: The paper focuses on the effects of fiscal policy on the industry-specific profit margin of a sector of an economy. This is a deviation from the existing literature, which focuses mainly on the effects of fiscal policy on the profit margin of the economy as a whole. In this work the price cost margin at the industry level is expressed as a function of the fiscal balance and other market variables such as industry share and price which are usually absent in a macro-analysis environment. Using a panel of ten European Union member countries for the period 1988-2005 we obtain the statistical results that support the existence of a non trivial relationship between price cost margin and fiscal policy, as it is expressed by the fiscal balance of a country. There are differences, however, between countries as well as industries reflecting different production and labor market conditions.
    Keywords: fiscal balance; price cost margin; market share; manufacturing
    JEL: H60 H62 L13 L16
    Date: 2017–03
  13. By: Choudhury, Mita (National Institute of Public Finance and Policy); Dubey, Jay Dev (National Institute of Public Finance and Policy)
    Abstract: This paper illustrates the use of information on withdrawals by Drawing and Disbursing Officers (DDOs) for improving estimates of public spending for National Health Accounts (NHAs) in India. Using information from two selected States (Karnataka and Rajasthan), the study highlights the advantages of combining DDO-level information with budgetary data for two purposes (i) mapping public spending to different provider classes of the international System of Health Accounts 2011 (SHA 2011) and (ii) mapping public spending to different types of healthcare providers in India. The benefits of using DDO-level information are found to be higher while mapping expenditure to healthcare providers in India than mapping to international categories of the SHA 2011. In particular, while mapping public spending to different types of healthcare providers in India, the improvement in precision of estimates brought about by DDO-level information was found to be significant in the two States.
    Keywords: National Health Accounts (NHA) ; Health Expenditure Estimates ; Public Health Spending ; Health Provider Spending ; Drawing and Disbursing Officers (DDOs) ; Indian States
    JEL: H51 H72
    Date: 2017–07
  14. By: Chen, Daphne (Econ One Research); Qi, Shi (College of William and Mary); Schlagenhauf, Don E. (Federal Reserve Bank of St. Louis)
    Abstract: A dynamic stochastic occupational choice model with heterogeneous agents is developed to evaluate the impact of a corporate income tax reduction on employment. In this framework, the key margin is the endogenous entrepreneurial choice of the legal form of organization (LFO). A reduction in the corporate income tax burden encourages adoption of the C corporation legal form, which reduces capital constraints on firms. Improved capital re-allocation increases overall productive efficiency in the economy and therefore expands the labor market. Relative to the benchmark economy, a corporate income tax cut can reduce the non-employment rate by up to 7 percent.
    Keywords: Corporate Income Tax; Legal form of Organization; Employment
    JEL: E02 E24 E60 L22
    Date: 2017–07–31

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